We spend an awful lot of time in healthcare talking about the Baby Boomers. No surprise, America has spent decades—six-and-a-half of them, to be exact—contending with the impact of this historically large generation on nearly every aspect of our national life. From politics to economics to culture, the Baby Boom reshaped almost every facet of our society, and healthcare has been no exception. The fact that over 10,000 Boomers join the Medicare ranks every day means they’ll have a transformative effect on how healthcare is delivered and paid for—up to and including the sustainability of the Medicare program itself. So it may come as a shock to Boomers to learn that, starting in 2019, it’s no longer All About Them. This year America passes a new milestone: Baby Boomers are now outnumbered by Millennials. As the chart below shows, Boomers (whose average age is now 63), will be surpassed this year by America’s new Largest Generation. Born between 1981 and 1996, the Millennials are now 30 years old on average, and there are 72.5M of them, compared to 72.0M Boomers—a gap that will continue to widen. (Thanks to immigration, we have another 14 years until we hit “peak” Millennial, according to Census Bureau projections.)

This demographic achievement alone ought to earn Millennials a participation trophy—obviously, not their first. (Forgive the sarcasm…we’re Gen X-ers, it’s what we do.) But this changing demographic landscape brings big implications for healthcare. Boomers are just entering their peak “senior care” consumption years now, and we’ll have a quarter-century or more of very expensive care to fund for a generation that is by all indications more riven with chronic disease but more likely to live into very old age than previous cohorts. That creates the imperative for population health approachesthat allow care for seniors to be delivered in lower-acuity settings. At the same time, however, Millennials are really just entering the healthcare system. For the next several years, most of their care needs will be driven by having babies and caring for growing families. But just as the last of the Boomers get their Medicare cards in 2029, the Millennials will begin to enter their “upkeep” years—demanding a variety of diagnostics, surgeries, and procedures to keep them thriving. Who will pay for all of that specialty care, and where will it be delivered? Today’s health system planners would do well to begin to look ahead to future capacity needs, and economic models.

The Millennials bring dramatically different service expectations as well. This is a generation raised in the era of Amazon. One-click purchases, same-day delivery, frictionless transactions, personalized offerings, low institutional loyalty—all of that will shape the way this generation thinks about consuming healthcare, with huge implications for providers. This is a high-information generation, whose adult years have seen a pervasive shift from physical to digital commerce, and they’ll expect healthcare to follow that trend. Ask today’s pediatric providers how different the Millennials are as parent-consumers—you’ll quickly get the picture. Even as physicians, hospitals and others scramble to retool care delivery to more efficiently manage the swelling ranks of seniors, they’ll need to keep a close eye on the preferences of Millennials, upon whom their future fortunes will rely, and who won’t tolerate the hurry-up-and-wait ethos that still pervades American medicine.

(Spoiler alert: waiting in the wings is Gen Z, digital natives born in 1997 and after. Guess what? There’s even more of them!)

Claire Pomeroy, CEO and president of the Albert and Mary Lasker Foundation, an expert in infectious diseases and a long-time advocate for patients, drove home the point of the importance of the social determinants of health by relating a story of a young woman who needed asthma medication but was unable to afford it.

She got a prescription for an inhaler she couldn’t afford, Pomeroy told a full room at HIMSS19. She knew the story because she was that woman. She needed a ride, food and money for a few days and had no way to get any of that, let alone buy a drug she couldn’t afford.

The clinicians followed all of the right clinical protocols for her condition. But, she said, “They didn’t have the information they truly needed to make me better.”

What was needed was for her clinicians to pay attention to the social determinants of health, an issue that providers are increasingly realizing need to be addressed if their population of patients is to remain healthy.

Without this attention being paid to housing, food, transportation and other socio-economic needs, costs will never be brought inline, as hospitals see patients returning to be admitted or get care through the emergency room.

“Our cost and our outcomes demand change,” Pomeroy said.

The statistics show the need. Black mothers die at truly unacceptable rates in this country, she said and all blacks in the United States have a life expectancy that is on average, 10 years less than whites.

All people in the United States who have a college degree live longer than those with a high school diploma. Stress on the job plays a part. And the opioid crisis has led to overdose deaths surpassing the odds of dying than from a car accident.

“We must redesign the U.S. healthcare system from one of sick care to wellcare,” Pomeroy said.

Healthcare makes up only 10 percent of what goes into the social determinants of health. The biggest percentage goes to behavioral patterns, genetic predisposition and social circumstances.

“We work all day and are only impacting 10-15 percent of the social determinants of health,” Pomeroy said. “Spending on social determinants make sense. We need to move beyond pilot programs and start scaling some of these things.”

Hospitals that spend money on housing to take care of their homeless population see a a 93 percent reduction in costs. For every $25 increase in delivered meals for older adults, there’s a 1 percent decline in nursing home admissions.

“Addressing the social determinants is an investment,” she said.

The biggest challenge is lack of funds for hospitals struggling to stay in the black, lack of data and siloed proprietary care information.

Information connectivity allowed one health system to learn that 31 percent of the Medicaid moms in its area were not enrolled in WIC, and therefore not getting access to food and supplies for their babies.

Technology is needed, as are more health policies for reimbursement that address risk adjustment. State innovation models help, as does the Centers for Medicare and Medicaid Services accountable health communities model, a five-year pilot looking at the connection between social assistance, health and costs.

EHRs should include information on housing, food, transportation and other needs. Systems must transform their thinking, create a new strategy, empower multidisciplinary teams, educate health professionals, invest in research and “raise our voices to drive change,” Pomeroy said.

The pace of change in healthcare is not slowing down; in fact, it is accelerating. Healthcare organizations that are most successful in 2019 will know what challenges and changes are coming down the pipeline, and they will prepare accordingly.

To help ensure you don’t get left behind, we’ve assembled the top six challenges the industry will face in 2019.

1. Shifting the focus from payment reform to delivery reform. For the past few years, C-suite leaders at healthcare organizations have been focused on navigating healthcare payment reform—attempting to preserve, improve, and maintain revenue. Amidst those efforts, delivery reform has sometimes taken a back seat.

That will need to change in 2019. Organizations that are the most successful will focus more on patient care than revenue, and they will see improved outcomes and reduced costs as a result.

Many organizations are already exploring delivery reform with initiatives that focus on:

In 2019, however, they will need to bring all of these initiatives together to implement sustainable improvements in how healthcare is delivered.

An added bonus? Organizations that accomplish this will see enhanced revenue streams as value-based reimbursement accelerates.

2. Wrestling with the evolving healthcare consumer. Healthcare consumers are demanding more convenient and more affordable care options. They expect the same level of customer service they receive from other retailers—from cost-estimation tools and online appointment booking to personalized interactions and fast and easy communication options such as text messaging and live chats.

Organizations that don’t deliver on these expectations will have a difficult time retaining patients and attracting new ones.

That’s not the only consumer-related challenge healthcare organizations will face. In 2019, millennials (between the ages of 23 and 38), will make up nearly a quarter of the U.S. population.

This generation doesn’t value physician-patient relationships as highly as previous generations. In fact, nearly half of them do not have a personal relationship with their physician, according to a 2015 report by Salesforce.

Finding ways to maintain or increase the level of humanity and interaction with millennials will be a key challenge in 2019. Patient navigator solutions and other engagement tools will be critical to an organization’s success.

The implications of the shortages, combined with the fact that healthcare organizations face a number of new challenges in the coming years, are many. Fewer clinicians can lead to burnout, medical errors, poorer quality, and lower patient satisfaction.

Healthcare organizations that thrive amidst the shortages will find new ways to scale and leverage technology to streamline work flows and improve efficiencies.

4. Living with EHR choices. Despite the hype and hopes surrounding EHRs, many organizations have found that they are failing to deliver on their expectations.

A recent Sage Growth Partners survey found that 64 percent of healthcare executives say EHRs have failed to deliver better population health management tools, and a large majority of providers are seeking third-party solutions outside their EHR for value-based care.

The survey of 100 executives also found that less than 25% believe their EHRs can deliver on core KLAS criteria for value.

Despite the dissatisfaction surrounding EHRs, switching EHRs may be a big mistake for healthcare organizations. A recent Black Book survey found 47% of all health systems who replaced their EHRs are in the red over their replacements. A whopping 95% said they regret the decision to change systems.

Hospitals and physician may not be entirely happy with their EHR choices, but the best course may be to stick with their system. Highly successful hospitals and health systems will find ways to optimize workflow and patient care which may involve additional IT investments and best of breed investment approaches, rather than keeping all of the proverbial eggs in the EHR basket.

5. Dealing with nontraditional entrants and disruptors. In 2018, several new entrants entered and/or broadened their reach into healthcare.

New partnerships have also arisen between traditional healthcare entities that could result in significant healthcare delivery changes. Cigna and Express Scripts received the go-ahead from the DOJ for their merger in September, and CVS and Aetna formally announced the completion of their $70 billion merger November 28.

All of these new industry disruptors and mergers will impact healthcare organizations, likely creating new competition, disrupting traditional healthcare delivery mechanisms, creating price transparency and pressures, and fostering higher expectations from consumers in 2019. Keeping an eye on these potential disrupters will be important to ensuring sustained success in the long term.

6. Turning innovation into an opportunity. From new diagnostic tests and machines to new devices and drug therapies—the past few years in healthcare have seen exciting and lifesaving developments for many patients. But these new devices and treatment approaches come with a cost.

One of biggest 2018 developments that best exemplifies the challenge between innovation and cost is CAR T-cell therapy. This new cancer treatment is already saving lives, but it racks up to between $373,000 and $475,000 per treatment. When potential side effects and adverse events are accounted for, costs can reach more than $1 million per patient.

Finding the best way to incorporate new treatments like this one, while balancing outcomes, cost, and healthcare consumer demands, will be a top challenge for healthcare organizations in 2019.

Dive Brief:

Financial challenges, including increasing costs, shaky Medicaid reimbursement, reductions in operating costs and bad debt, ranked No. 1 on the list of hospital CEO worries in 2018, according to an American College of Healthcare Executives poll.

Government mandates and patient safety and quality tied for second place in ACHE’s survey of top issues facing health systems. Workforce shortages came in third.

A little more than 350 execs responded to the survey and ranked 11 concerns their facilities faced last year. Behavioral health and addiction issues, patient satisfaction, care access, physician-hospital relations, tech, population health management and company reorganization filled in the remaining slots.

Dive Insight:

No matter which cog in the healthcare system one blames for the skyrocketing costs of healthcare (big pharma inflating the list prices of drugs; hospitals for upmarking services; insurers for leaving gaps in care resulting in surprise bills) consumers’ pocketbooks aren’t the only ones affected.

A separate American Hospital Association-backed study predicted health systems will lose $218 billion in federal payments by 2028, and private payers (whose dollars would normally help hospitals make up the difference) have been curtailing reimbursements as well.

Bad debt was another fear in the ACHE report. Uncompensated care costspeaked in 2013 at $46.4 billion and, though the figures have decreased slightly since then, hospitals shelled out $38.3 billion in 2016. Wisconsin alone was on the hook for $1.1 billion in uncompensated care in fiscal year 2017.

“The survey results indicate that leaders are working to overcome challenges of balancing limited reimbursements against the rising costs of attracting and retaining talented staff to provide that care, among other things,” ACHE president and CEO Deborah Bowen said in a statement.

Other financial concerns included competition, government funding cuts, the transition to value-based care, revenue cycle management and price transparency.

And 70% of hospital CEOs were worried about shifting CMS regulations in 2018, along with regulatory/legislative uncertainty (61%) and cost of demonstrating compliance (59%) — unsurprising, given the current administration’s track record of unpredictability.

Patient safety and quality of care was also top of mind for health system CEOs, with over half of respondents anxious about the high price of medications, involving physicians in the culture of quality and safety and getting them to reduce unnecessary tests and procedures.

Also of interest was the high rank given to addressing behavioral health and addiction issues, according to Bowen, which ranked fifth in its first year of being included in the survey. The topic has been front and center in the industry of late, in line with the increasing recognition of social determinants of health and the breakdown in silos of care.

Ranking of the issues has remained largely constant since 2016, though in 2017 more hospital CEOs were concerned about personnel shortages than patient safety and quality.

As we wrote last week, the recent dust-up between CVS’s pharmacy benefit management (PBM) subsidiary Caremark and Walmart, during which the retail giant threatened to sever its relationship with CVS over a dispute regarding reimbursement levels before finally coming to a settlement, is a harbinger of things to come as the healthcare landscape becomes dominated by massive, vertically-integrated competitors.

A new investigative piece from The Columbus Dispatch this week seems to confirm this view. Examining previously-undisclosed data about CVS’s drug plan pricing practices as part of Ohio’s Medicaid program, the article reveals that CVS paid its own retail pharmacies much higher reimbursement rates than it offered to key competitors Walmart and Kroger to provide generic drugs to Medicaid beneficiaries. According to the article, CVS would have had to pay Walmart pharmacies 46 percent more, and Kroger pharmacies 25 percent more, to match the levels of reimbursement it paid its own retail pharmacies, data that are cited in a state report on the Medicaid pharmacy program that CVS is engaged in a court battle to keep secret. The reimbursement differential is “startling information”, according to a former Justice Department antitrust official quoted in the article. A spokesman for CVS maintained that the PBM’s payment rates are “competitive” and influenced by a complex range of factors. Underscoring the opaque and complicated methodology drug plans use to determine payments to retail pharmacies, independent pharmacy operators were paid more than CVS stores, as were Walgreens stores. A separate analysis of PBM pricing behavior in New York uncovered similar evidence, according to Bloomberg.

The Ohio and New York pharmacy stories are yet more evidence that, as healthcare companies continue to expand their control over greater segments of the “value chain”—combining, for example, insurance, distribution, and care delivery—they are able to flex their market power in ways that look increasingly anti-competitive. Hospitals that “own” their referral sources, insurers that “own” the delivery of care, and pharmacies that “own” drug benefit managers all edge closer to creating closed, proprietary platforms that can lock out competitors in any one segment.

That’s a feature, not a bug—indeed, much of the logic of population health is predicated on “network integrity”: keeping consumers inside a fully-controlled ecosystem of care to enable better coordination and reduce duplication and inefficiencies. Yet as giant healthcare corporations turn themselves into Amazon-style “everything stores”, we need to keep a watchful eye on competition.

Red flags to watch for: using the courts to maintain secret agreements or block the free flow of talent or information, “vertical tying” behavior that requires all-or-nothing contracting, and pricing strategies that leverage market power in one segment to raise prices in another.

The biggest flaw in using “market competition” to lower the cost of care: most companies hate actually competing in the marketplace—a problem made even more vexing by vertical integration.

Ripple effects from 2018 will continue well into the new year as players deal with some massive policy and business shifts.

The coming year for healthcare will see the industry reckon with some of the massive changes set in motion last year, such as megamergers like CVS-Aetna and Cigna-Express Scripts and a judge’s declaration that the Affordable Care Act is no longer constitutional.

On the policy front, newly-installed Democrats in Congress (and the party’s 2020 presidential candidates) will be pushing for more comprehensive health coverage plans while the GOP considers tougher Medicaid restrictions at the state, and potentially federal, level.

Meanwhile, some familiar storylines are likely to continue. Effusive digital health funding and increases in mobile and telehealth services show no signs of abating, and neither does general M&A activity.

Here’s a snapshot of a few big trends for the payer and provider crowds to watch for in 2019.

Providers: Behavioral care goes primary, investment in digital

1. Narrowing gaps in population, behavioral healthcare

Historically, behavioral health services have been mostly disparate, but increased spending in digital health and a focus on lowering out-of-pocket costs will help spur greater connectivity, Sandra Kuhn, national lead for behavioral health consulting at Mercer, told Healthcare Dive. She predicted “more partnerships between traditional medical and behavioral health carriers on smaller, targeted point solutions” as the industry already began to see last year.

The trend more broadly fits into the push to recognize and act on social determinants of health.

One partnership is the Utah Alliance for the Determinants of Health, a coalition of providers, community organizations and government agencies banding together to reduce the impacts of SDOH. Their plan seeks to address socioeconomic stressors like housing instability, food insecurity and transportation — circumstances with a direct effect on mental and physical health — before patients show up in the ER lobby. Intermountain Healthcare, a primary stakeholder, invested $12 million in the initiative.

Overall, Kuhn said, more organizations will step up with tactical solutions to what has otherwise been an intractable problem. That includes payers like state Medicaid programs, many of which have begun value-based payments for behavioral health services.

Progress on behavioral and population health is happening in tandem with — or perhaps existing symbiotically alongside — the growth of telemedicine. At Riverside Health System, a rural health network in Newport News, Virginia, a long-term telebehavioral health initiative has improved coordinated care among psychiatrists and clinical social workers, as well as replaced a chunk of services offered at the system’s nursing homes.

Riverside isn’t the first to find success with telebehavioral health, but the system’s wider experimentation with programming, a happy accident triggered by a psychiatrist shortage, has certainly shown there’s a market for it — one that Quartet, Lyra and Teladoc have been quick to capitalize on. This year will see a swath of players from across the industry tackle behavioral health gaps by complementing primary care with telemedicine.

2. Doubling down on digital

While larger health systems tend to have the means to be early adopters of new and robust healthcare technologies, physicians are beginning to integrate such services into their practices.

Use of telehealth among the commercially insured has been gradually rising since the mid-2000s, having grown 52% annually from 2005 to 2014 before spiking 261% between 2015 and 2017, according to JAMA.

Revenue cycle management firm SYNERGEN Health estimates digital health tech for remote use will grow by 30% this year, allowing patients to better manage their own healthcare, giving clinicians an opportunity to spend more time with more patients and, of course, generating new revenue streams.

As more payers hop aboard the telemedicine train and more services are covered, hospitals will continue see costs fall. A 2017 report from the Rural Broadband Association found that telehealth services were associated with an annual cost savings of $20,841 per U.S. hospital on average. The caveat here for hospitals is the very real possibility that large facilities will become increasingly more obsolete and overhead costs will become too costly as patients find yet another reason to stay away from their doors.

3. Price transparency still a question mark

Many are hoping the days of the $629 hospital bill for a wet towel and a Band-Aid are coming to an end, but it’s not likely to happen in 2019.

Still, legislators and consumers alike are making price transparency an issue in hopes of curbing skyrocketing healthcare costs.

CMS took some action last year by finalizing a new rule mandating hospitals post chargemaster rates online in a machine-readable format. But the rule is effectively toothless. Hospitals were already required to make those prices available, and chargemaster rates only apply to the uninsured and balance billing. And despite the fact that the rule went into effect on the first day of the year, CMS admitted recently that it has no way of enforcing the mandate and would not comment on how many hospitals are currently in compliance with the rule.

“It is [our] expectation that all of them will comply,” CMS Administrator Seema Verma said on a call with reporters.

The rule doesn’t specify where hospitals need to post their charges. The only requirement is that they’re made available online, which has allowed health systems like mega-operator Ascension to bury their charges behind a tangled maze of clicks.

The company has previously defended itself in a statement to Healthcare Dive by arguing the costs can be confusing for patients, as they don’t take financial assistance and charity care into consideration. Chargemaster information, as some critics have pointed out, isn’t a very useful measure of pricing for consumers. It can actually be counterproductive.

“I’m predicting not much will happen and people won’t pay attention to it because the charges aren’t actually relevant to the vast majority of people,” Lee said. “If people are uninsured, I doubt they’re looking at these things either.”

If the ACA taught economists and legislators anything about American consumers, it’s that they want healthcare, but don’t want to take the time to shop around for it. In a recent Health Affairs survey, just 13% of respondents responsible for cost-sharing in their last healthcare encounter sought cost information before receiving care. Only 3% compared prices of different providers.

History seems to be repeating itself, as CMS hopes its “first step toward price transparency” will be picked up by market forces. By mandating the information be made available in a different file format, CMS believes it has “set the stage” for that data to be used by private third parties that can develop tools for consumers to use.

“There’s nothing in the rule that prevents hospitals from going further with this,” Verma said. “Hospitals can do that today.”

But they aren’t. In fact, the percentage of hospitals unable provide patients with price information jumped from 14% to 44% between 2012 and 2016, according to a JAMA study.

In short, the CMS rule is much more of a light nudge than a forceful shove into price transparency, and without regulation and the means of enforcing it, hospitals have little to no incentive to change. But expect the wheels of the price transparency conversation to continue turning in 2019, regardless.

Payers: Contract fights, a focus on value and more managed care

1. Contentious negotiations and contract disputes

As insurers have bulked up in scale after blockbuster mergers last year, Fitch Ratings expects relationships between providers and payers to be even more contentious during contract negotiations even in a value-based payment setting.

Hospitals can also expect low rate increases from commercial insurers, according to Moody’s.

In markets where there is a dominant insurer and multiple hospitals, “Each hospital will need to demonstrate why it is indispensable to the insurer … and why it should be included in a network,” Moody’s reports.

However, there are potential glimmers of hope. As more states have expanded Medicaid, it puts pressure on other states to do so, which would provide a means of payment for hospitals that have gone without payment caring for the uninsured.

2. Value-based momentum

Payers and providers will continue to enter into value-based contracts in 2019 at varying degrees, according to Moody’s.

Many hospitals are engaging in contracts that offer incentives or alternative payment models for reaching certain quality measures, but very few are taking on full risk, or both the upside and downside risks within a contract, according to Moody’s.

That will continue into 2019: few are likely to take on downside risk, or the possibility of losing money, Moody’s reports.

However, while the popularity and use of these payment models continues, its cost-savings benefits have yet to be realized, according to a recent report.

Meanwhile, CMMI continues to test for ways to drive change in the healthcare by paying for quality as opposed to quantity. For instance, CMMI is testing whether it can reduce utilization and ultimately costs by addressing social-needs such as housing for Medicare and Medicaid beneficiaries. CMMI’s director Adam Boehler said he won’t force organizations to take on risk, but will help them take on a level of riskthey’re comfortable with.

But in an about-face, the Trump administration seems to be signaling that it may institute mandatory payment models that could put providers at risk of losing money.

3. Medicare Advantage still lucrative, popular

Medicare Advantage will continue to be a profit center for insurers, which typically enjoy a 5% margin, according to 2016 data from the Medicare Payment Advisory Commission.

As the population ages, it presents a growth opportunity for payers. Enrollment in MA plans grew by 8% from 2016 to 2017, according to a recent MedPAC report, as many more seniors are choosing to enroll in plans run by traditional insurers. About 34% of beneficiaries choose MA, a significant increase from a decade ago when just 10% enrolled in such plans.

Beginning this year, MA plans have greater flexibility to offer non-traditional benefits such as adult daycare, meals or in-home care to improve the overall health of patients, particularly those will high needs. CMS Administrator Seema Verma previously said 270 MA plans will offer these new benefits in 2019.

These new benefits also pose an opportunity for nontraditional healthcare companies such as Lyft and Uber, which are looking for ways to shuttle seniors to appointments and pharmacies.

Payers including Cigna touted the future growth opportunity it sees for MA. “We are well positioned today and going forward for existing and new markets,” Cigna CEO David Cordani said of MA, according to Forbes.

4. Medicaid managed care growth

As states weigh expanding Medicaid, it’s another potential opportunity for managed care plans to contract with states. As more states expand the program, it puts pressure on the remaining holdouts.

Last year, some red states took the issue to the ballot box and got approval for expansion, potentially providing a roadmap for stakeholders to replicate in other states where the legislatures balk at expansion. California Gov. Gavin Newsom is backing an idea that would expand Medicaid eligibility in his state to undocumented young adults, providing another opportunity for Medicaid managed care firms.

Likely potential winners are Centene and Molina. Centene is the nation’s largest Medicaid managed care firm with operations in 21 states covering more than 8 million people. Molina serves more than 3 million in 13 states and Puerto Rico.

Just recently, Molina CEO Joseph Zubretsky said even without expansion ushered in by the Affordable Care Act, $1 billion of new revenue opportunity exists in Molina’s existing footprint because of states like Illinois that are expanding Medicaid managed care statewide.

Health system operating income is deteriorating as hospital expenses continue to grow, according to a recent Navigant analysis.

In the three-year analysis of the financial disclosures for 104 prominent health systems that operate almost one-half of US hospitals, the healthcare consulting firm found that two-thirds of the organization saw operating income fall from FY 2015 to FY 2017. Twenty-two of these health systems had three-year operating income reductions of over $100 million each.

Furthermore, 27 percent of the health systems analyzes lost revenue on operations in at least one of the three years analyzed and 11 percent reported negative margins all three years.

Hospital revenue growth slowed during the period because demand went down for key hospital services, like surgery and inpatient admissions, Navigant explained.

Many of the revenue-generating services hospitals rely on are under the microscope. Policymakers and healthcare leaders are particularly looking to decrease the number of hospital admissions and safely shift inpatient surgeries to less expensive outpatient settings.

In exchange, Medicare and other leading payers are reimbursing hospitals for decreasing admissions or readmissions and their performance on other value-based metrics.

The shift to value-based reimbursement, however, is slow and steady, with just over one-third of healthcare payments currently linked to an alternative payment model. Hospitals and health systems are still learning to navigate the new payment landscape while keeping their revenue growing.

Value-based contracts also failed to deliver sufficient patient volume to counteract the discounts given to payers, Navigant added.

According to the firm, other factors contributing to a slowdown in hospital revenue growth included a decline in collection rates for private accounts and reductions in Medicare reimbursement updates because of the Affordable Care Act and the 2012 federal budget sequester.

“Because of reductions in Medicare updates from ACA and the sequester, hospital losses in treating Medicare patients rose from $20.1 billion in 2010 to $48.8 billion in 2016, according to American Hospital Association analyses,” the report stated. “The sharp $7.2 billion deterioration in Medicare margins that occurred from 2015 to 2016 surely contributed to the reduction in hospital operating margins in the same year of this analysis.”

The shift to value-based reimbursement and all of its accompanying policies will be the “new normal,” and hospitals should expect the low rate of revenue growth to persist, Navigant stated.

But hospitals and health systems can withstand the economic downturn by achieving strategic discipline and operational excellence, the firm advised.

“Systems must be disciplined to invest their growth capital in areas of actual reachable demand; that is, matched to the growth potential in the specific local markets the system serves,” the report stated. For example, creating a Kaiser-like closed panel capitated health offering in markets where there is no employer or health plan interest in buying such a product is a waste of scarce capital and management bandwidth.”

In line with strategic discipline, organizations will need to “prune” their owned assets portfolio by improving the utilization of their clinical capacity and growing patient throughput. Health systems can achieve this by focusing on scheduling and staffing, ensuring adherence to clinical pathways, streamlining discharges and care transitions, and adjusting physical capacity to actual demand.

The tools used to succeed in value-based contracts should also be applied to Medicare lines of business to reduce Medicare operating losses.

“Revenue growth is more likely to occur around the edges of the hospital’s core services — inpatient care, surgery, and imaging — rather than from those services themselves,” the report stated. “Creatively repackaging services like care management that is presently imbedded in every aspect of clinical operations, and finding retail demand for services presently bundled as part of the hospital’s traditional service offerings, represent such edge opportunities.”

Reducing patient leakage in multi-specialty groups and systems through improved referral patterns, scheduling, or care coordination will help to grow revenue and keep it within the system.

“To achieve better performance, health system management and boards must take a fresh look at their strategy considering local market realities. They need to look closely at the markets they serve, and size and target their offerings to actual market demand,” the report concluded. “They must re-examine and rationalize their portfolio of assets and demand marked improvements in efficiency and effectiveness, and measurable value creation for those who pay for care, particularly their patients. Since much of this should have been done five years ago, time is of the essence.”